What is self-employment tax? How much it costs and how to calculate it
Key takeaways
- Cross the $184,500 Social Security wage base for 2026, and your effective self-employment tax rate actually drops, since only the uncapped 2.9% Medicare portion still applies above that point.
- Self-employment tax runs 15.3% of your net business profit: 12.4% funds Social Security, 2.9% funds Medicare, and it kicks in once net profit reaches $400 for the year.
- Solvent's self-employment tax calculator runs this math automatically and breaks out the Social Security and Medicare portions separately, so you can see exactly what's funding what.
In this article
Key takeaways
- Cross the $184,500 Social Security wage base for 2026, and your effective self-employment tax rate actually drops, since only the uncapped 2.9% Medicare portion still applies above that point.
- Self-employment tax runs 15.3% of your net business profit: 12.4% funds Social Security, 2.9% funds Medicare, and it kicks in once net profit reaches $400 for the year.
- Solvent's self-employment tax calculator runs this math automatically and breaks out the Social Security and Medicare portions separately, so you can see exactly what's funding what.
Self-employment tax is a 15.3% federal tax on your net business profit, and it funds Social Security and Medicare. Think of it as the payroll tax a W-2 employer and employee normally split between them; when you're self-employed, both halves land on you. It kicks in once your net earnings hit $400 for the year, calculated on IRS Schedule SE.1
What is self-employment tax?
Self-employment tax is how the federal government funds Social Security and Medicare for people who work for themselves, the direct equivalent of the FICA line on a W-2 employee's paystub. It runs alongside your income tax rather than replacing it. And it's owed on net business profit no matter what tax bracket you land in overall.
Here's the part that's easy to miss: the earnings you report on Schedule SE are exactly what the Social Security Administration uses to calculate your future retirement and disability benefits. Skip paying it, and you're quietly skipping the credits that make you eligible for those benefits down the road.
FICA vs. SECA
FICA (the Federal Insurance Contributions Act) and SECA (the Self-Employment Contributions Act) fund the same two programs, Social Security and Medicare, through two different laws: one written for W-2 employees, the other for the self-employed.
| FICA (W-2 employees) | SECA (self-employed) | |
|---|---|---|
| Who pays the 15.3% | Split evenly: 7.65% employee, 7.65% employer | You pay the full 15.3% |
| How it's collected | Withheld automatically from each paycheck | Calculated and reported on Schedule SE |
| Income tax offset | Not needed; the employer's share isn't taxed to the employee | 50% of your SE tax is deductible above the line |
Who owes self-employment tax
Anyone running a trade or business with a profit motive owes self-employment tax once net earnings hit $400 for the year, counted across everything you do.1Sole proprietors, single-member LLC owners, gig workers, freelancers, and active partners are all on the hook. Age doesn't get you out of it either: retirees still owe tax on active business profit.
One exception: church employees fall under a much lower threshold, $108.28, under separate rules in IRS Publication 517.
How much is self-employment tax?
The baseline rate is 15.3% of net business profit, split into two pieces that fund two different programs.
The 15.3% rate breakdown
Social Security takes 12.4% and funds retirement, disability, and survivor benefits. In 2026, every $1,890 of covered earnings buys you one credit, capped at four a year, and most people need 40 credits total over their working life to qualify.3Medicare takes the remaining 2.9%, and unlike Social Security, it applies to every dollar of net profit with no ceiling.
The Social Security wage base cap
The 12.4% Social Security piece only applies up to a limit that adjusts yearly for inflation.
| Tax year | Social Security wage base | Maximum Social Security tax |
|---|---|---|
| 2025 | $176,100 | $21,836.40 |
| 2026 | $184,500 | $22,878.00 |
Once your net earnings pass the cap, your effective rate on income above it actually drops, since only the 2.9% Medicare tax still applies.
The uncapped Medicare tax and the Additional Medicare surcharge
The 2.9% Medicare tax applies to every dollar of net self-employment earnings; there's no ceiling on it. Cross $200,000 single, $250,000 married filing jointly, or $125,000 married filing separately, and you owe an extra 0.9% on top.4That surcharge gets reported on Form 8959, and unlike the base tax, none of it qualifies for the 50% above-the-line deduction.
How to calculate self-employment tax
Schedule SE walks you through the math, or use Solvent's self-employment tax calculator to run it automatically.2
Step 1: Net Schedule C profit
Start with net business profit: gross revenue minus deductible expenses. Office supplies, software, advertising, and mileage all count. A 1099 deductions checklist is worth keeping on hand for a fuller rundown of what qualifies.
Step 2: Apply the 92.35% adjustment
Multiply net profit by 92.35%, which is 100% minus the employer-equivalent share of FICA, to get your taxable self-employment base. This puts you on similar footing to a W-2 employee, who never pays income tax on the half of FICA their employer covers.
Step 3: Apply the 15.3% rate up to the wage base
Below the 2026 wage base of $184,500, apply 15.3% to your adjusted earnings. Above it, apply 12.4% only to the first $184,500, then 2.9% to the full adjusted amount. Add the two together for your total self-employment tax.
Step 4: The 50% above-the-line deduction
Divide your total self-employment tax by two for your deduction, claimed on Schedule 1. It lowers your adjusted gross income and income tax, but not the self-employment tax bill itself.
Here's how the math plays out at three profit levels under 2026 rules:
| Net Schedule C profit | Adjusted earnings (×92.35%) | Social Security (12.4%) | Medicare (2.9%) | Total SE tax | Deductible half |
|---|---|---|---|---|---|
| $60,000 | $55,410.00 | $6,870.84 | $1,606.89 | $8,477.73 | $4,238.87 |
| $150,000 | $138,525.00 | $17,177.10 | $4,017.23 | $21,194.32 | $10,597.16 |
| $220,000 | $203,170.00 | $22,878.00 | $5,891.93 | $28,769.93 | $14,384.97 |
If you have both a W-2 job and 1099 income
Your W-2 wages count against the Social Security wage base first, since your employer's already withholding Social Security tax from every paycheck you get. If those wages alone meet or exceed the cap, your self-employment profit skips the 12.4% portion entirely, and you're left owing just the 2.9% Medicare tax on it.
Say you're earning $120,000 in W-2 wages plus $100,000 in net 1099 profit. Adjust that 1099 profit by 92.35% and you get $92,350.00 in taxable earnings; your W-2 wages have already used up $120,000 of the $184,500 cap, leaving $64,500.00 of room. Pay 12.4% on that remaining $64,500.00, 2.9% on the full $92,350.00, and your total self-employment tax comes to $10,676.15.
How self-employment tax interacts with retirement contributions
Contributing to a Solo 401(k), SEP-IRA, or SIMPLE IRA lowers your income tax. It does nothing for your self-employment tax, because the IRS calculates that on net profit before any retirement contribution comes out. Put $10,000 into a Solo 401(k) on $80,000 of net profit, and your self-employment tax is still figured on the full $80,000.
There's a sequencing quirk specific to a SEP-IRA: your contribution limit is based on earnings after the 50% self-employment tax deduction, which means you have to work out self-employment tax before you can figure out how much you're allowed to contribute.
How to lower your self-employment tax bill
Claim every valid Schedule C deduction
Since the tax is calculated on net profit, every deduction you claim shrinks the base. Mileage, home office costs, internet, and software are commonly missed write-offs worth tracking closely.
Consider an S corp election
Electing S corp status splits income into a W-2 salary, subject to FICA, and distributions, which aren't subject to self-employment tax at all. The catch: the IRS requires "reasonable compensation" for your work, comparable to what a similar business would pay a non-owner employee. Set the salary too low, and the IRS can recharacterize distributions as wages, with back taxes and penalties attached.
How to report and pay self-employment tax
None of this gets withheld automatically, so reporting it correctly and paying it on schedule takes a few deliberate steps.
- 1. Work out your self-employment tax on Schedule SE, starting from your net Schedule C profit.
- 2. Carry that total over to Schedule 2 of Form 1040, where it gets added to your overall tax bill.
- 3. Claim your 50% above-the-line deduction on Schedule 1 to bring down your adjusted gross income.
- 4. Pay it throughout the year via quarterly estimated payments once you expect to owe $1,000 or more in total tax; those land on April 15, June 15, September 15, and January 15.5
If you're ready to run your own numbers, Solvent's self-employment tax calculator gives you an instant estimate.
About the author
Nicolas Straut
Personal and business finance writer, former Forbes contributor
Nicolas writes about self-employment tax, invoicing, and small-business money for Solvent. He's spent eight years writing about money and building content for fintech companies, and still files his own taxes as a freelancer.
More articles by Nicolas Straut →Frequently asked questions about self-employment tax
How much is self-employment tax on $50,000?
Multiply $50,000 by 92.35% and you get a $46,175 taxable base. Apply the 15.3% rate to that, and you land on $7,064.78 in total self-employment tax, $5,725.70 of it for Social Security, $1,339.08 for Medicare.
Does self-employment tax apply to hobby income?
No. Self-employment tax only applies to income from an activity carried on with a genuine profit motive, and the IRS treats a hobby differently from a business. Hobby income is still taxable as ordinary income, but it's exempt from the 15.3% self-employment tax.
Is self-employment tax the same in every state?
Yes. It's a federal tax, so the 15.3% rate and the rules behind it don't change based on where you live. State income tax is a separate calculation, and rates for that vary widely from state to state.
What happens if I don't pay self-employment tax?
Expect penalties and interest on the unpaid amount, same as with any other unpaid tax. There's a quieter cost too: skip it, and those earnings won't count toward your Social Security work credits, which can come back to affect your retirement or disability benefits later.
Do I owe self-employment tax if my business had a net loss?
No. Self-employment tax only applies to net profit, and a loss means there's nothing to tax. If your deductible expenses outran your revenue for the year, you owe nothing here, though you'll still need to report the loss on Schedule C.
Do LLC members always pay self-employment tax on their share of profits?
Generally, yes, for active members managing the business, since the IRS defaults to treating that income like sole proprietor income. Elect S corporation taxation instead, and income splits into salary and distributions, which changes how much of it is actually subject to the tax.